Insurers Look at Options If Individual Mandate Overturned

President Obama signs the Health Care and Education Reconciliation Act of 2010. It's now up to the Supreme Court. (official White House photo by Pete Souza)

Next week, the Supreme Court begins three days of hearings on the Affordable Care Act. The justices will have to rule on the constitutionality of the individual mandate and the Medicaid expansion, unless they rule that the plaintiffs lack standing to sue because the penalties under the law have not come into existence yet.

Jeffrey Toobin has a nice piece about the relevant issues, as seen through conservative appeals court judge Brett Kavanaugh, who warned his colleagues to be careful what they wished for, that if they struck down a mandate based on using private companies to deliver benefits, the only recourse for the government would be to retreat to public options where the constitutionality is more well-grounded (of course, an adverse ruling on the Medicaid expansion would upend this case). Kavanaugh also has some crazy ideas about how future Presidents could simply “deem” the law unconstitutional and refuse to implement it.

But I’m more interested in what happens in the event of one “worst-case scenario.” If the mandate is upheld along with the Medicaid expansion, or even if the court rules a lack of standing, business as usual continues and the implementation goes forward to 2014, when the exchanges begin. But if the mandate is severed from the bill, then things get interesting. Louise Radnofsky writes about that scenario today:

The insurance industry and advocates of the health-care overhaul are sketching out contingency plans in case the Supreme Court strikes down a central part of the law in the coming months.

Their worst-case scenario: The court knocks out the law’s mandate that most Americans carry insurance or pay a fee but leaves in place requirements that insurers sell policies to all applicants. The result, they say, would be spiraling insurance premiums, because sick people would buy insurance and nothing would stop healthy people from waiting to buy it until they needed it.

“The insurance reforms would have to change if the mandate were struck,” said Justine Handelman, vice president of legislative and regulatory policy for the Blue Cross and Blue Shield Association trade group.

But how would they change? Republicans and Democrats would obviously have different views on that. And it would be difficult to reach consensus and navigate the interlocking committees with jurisdiction, as we saw throughout 2009 and 2010.

The insurance industry would maneuver to throw out the pre-existing condition exclusion, fearing the outcome if anyone can buy insurance without restrictions but isn’t compelled to by law (the idea being that people will join up for insurance the moment they get sick). Insurers also want to ditch the modified community rating aspect, which forces them to charge the same amount for their product with few exceptions. Then, the industry would want to come up with some mechanism to reward those who voluntarily purchase insurance and punish those who don’t.

This could manifest itself in a variety of ways. There could be a narrow enrollment period annually where people could enroll without a penalty, with significant penalties outside the windows. Insurers could deny certain treatments at the outset of a policy, to limit “free-rider” aspects. There could be rewards in the form of lower premiums for healthy people or younger people. They could incent employers to sign up more people for health insurance, expanding the risk pool. Or they could get credit reporting firms to include health insurance in one’s personal credit rating, which would impact the ability to purchase a mortgage or an auto loan. Additionally, you could see a national tax for uncompensated care, to deal with the cost of the uninsured in a non-mandate universe.

These are some of the ideas being discussed. It’s true that not every insurance system in the world is backed by an individual mandate, and some of them work well. There are elements of the ideas put forward by insurers, like the discounts for healthy or young customers, that insurers could implement today without Congressional action. Others would require Congress to untangle their law. And since the baseline theory in the Republican Party is that the entire law must be scrapped, I don’t see any reason they would be agreeable to such changes.

Considering that the penalty for not getting insurance is so weak – $95 or 1% of income, whatever is greater – and considering that the CBO still expects 27 million uninsured even with a “mandate” universe, it’s not clear to me what we’re fighting. If insurance companies feel like they would capture as many profits without the mandate, I don’t know why I’m compelled to care, unless they start breaking the law to rip off consumers as a result. Anyway, the political world will surely buzz about it all anyway.

Insurers Look at Options if Individual Mandate Overturned

Next week, the Supreme Court begins three days of hearings on the Affordable Care Act. The justices will have to rule on the constitutionality of the individual mandate and the Medicaid expansion, unless they rule that the plaintiffs lack standing to sue because the penalties under the law have not come into existence yet.

Jeffrey Toobin has a nice piece about the relevant issues, as seen through conservative appeals court judge Brett Kavanaugh, who warned his colleagues to be careful what they wished for, that if they struck down a mandate based on using private companies to deliver benefits, the only recourse for the government would be to retreat to public options where the constitutionality is more well-grounded (of course, an adverse ruling on the Medicaid expansion would upend this case). Kavanaugh also has some crazy ideas about how future Presidents could simply “deem” the law unconstitutional and refuse to implement it.

But I’m more interested in what happens in the event of one “worst-case scenario.” If the mandate is upheld along with the Medicaid expansion, or even if the court rules a lack of standing, business as usual continues and the implementation goes forward to 2014, when the exchanges begin. But if the mandate is severed from the bill, then things get interesting. Louise Radnofsky writes about that scenario today:

The insurance industry and advocates of the health-care overhaul are sketching out contingency plans in case the Supreme Court strikes down a central part of the law in the coming months.

Their worst-case scenario: The court knocks out the law’s mandate that most Americans carry insurance or pay a fee but leaves in place requirements that insurers sell policies to all applicants. The result, they say, would be spiraling insurance premiums, because sick people would buy insurance and nothing would stop healthy people from waiting to buy it until they needed it.

“The insurance reforms would have to change if the mandate were struck,” said Justine Handelman, vice president of legislative and regulatory policy for the Blue Cross and Blue Shield Association trade group.

But how would they change? Republicans and Democrats would obviously have different views on that. And it would be difficult to reach consensus and navigate the interlocking committees with jurisdiction, as we saw throughout 2009 and 2010.

The insurance industry would maneuver to throw out the pre-existing condition exclusion, fearing the outcome if anyone can buy insurance without restrictions but isn’t compelled to by law (the idea being that people will join up for insurance the moment they get sick). Insurers also want to ditch the modified community rating aspect, which forces them to charge the same amount for their product with few exceptions. Then, the industry would want to come up with some mechanism to reward those who voluntarily purchase insurance and punish those who don’t.

This could manifest itself in a variety of ways. There could be a narrow enrollment period annually where people could enroll without a penalty, with significant penalties outside the windows. Insurers could deny certain treatments at the outset of a policy, to limit “free-rider” aspects. There could be rewards in the form of lower premiums for healthy people or younger people. They could incent employers to sign up more people for health insurance, expanding the risk pool. Or they could get credit reporting firms to include health insurance in one’s personal credit rating, which would impact the ability to purchase a mortgage or an auto loan. Additionally, you could see a national tax for uncompensated care, to deal with the cost of the uninsured in a non-mandate universe.

These are some of the ideas being discussed. It’s true that not every insurance system in the world is backed by an individual mandate, and some of them work well. There are elements of the ideas put forward by insurers, like the discounts for healthy or young customers, that insurers could implement today without Congressional action. Others would require Congress to untangle their law. And since the baseline theory in the Republican Party is that the entire law must be scrapped, I don’t see any reason they would be agreeable to such changes.

Considering that the penalty for not getting insurance is so weak – $95 or 1% of income, whatever is greater – and considering that the CBO still expects 27 million uninsured even with a “mandate” universe, it’s not clear to me what we’re fighting. If insurance companies feel like they would capture as many profits without the mandate, I don’t know why I’m compelled to care, unless they start breaking the law to rip off consumers as a result. Anyway, the political world will surely buzz about it all anyway.